Shanghai Stock Index Rises as Consumer, Food Shares Gain on Growth Outlook

China’s stocks climbed as consumer companies rallied for a second week on speculation their earnings will be resilient in an economic slowdown and cement producers jumped on government efforts to curb overcapacity.

Heilongjiang Agriculture Co. rose to a four-month high, leading gains by agricultural companies, after the worst floods in a decade boosted food prices. Anhui Conch Cement Co. advanced 1.8 percent after the government said it will shut 762 cement companies by the end of September. Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp. fell on concern China Everbright Bank Co.’s initial public offering will divert funds from existing equities.

“Bigger companies will be the ultimate beneficiaries of the plan to remove overcapacity because of advanced technology and the better quality of their products,” said Zhang Kun, a strategist at Guotai Junan Securities Co. in Shanghai. “Food- related stocks will be a good theme to play as consensus is that July inflation would be on the upside.”

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, added 14.14, or 0.5 percent, to 2,672.53 at the 3 p.m. close, the highest since May 24. The CSI 300 Index climbed 0.7 percent to 2,918.24.

The Shanghai index has rebounded 13 percent from this year’s low set on July 5 as investors speculated the government will ease property curbs and allow more lending to counter a slowdown in economic growth. The benchmark measure is still down 18 percent in 2010, the world’s third-worst performer, after the government increased down payment requirements on home sales and ordered banks to set aside more deposits as reserves.

Slowing Economy

Data to be released this week will probably show the economy slowing and inflation accelerating. China’s expansion dipped to 10.3 percent the second quarter from 11.9 percent in the first three months of the year.

Industrial production probably climbed 13.4 percent from a year earlier in July after a 13.7 percent gain a month earlier, as the government shuttered energy-intensive factories, according to the median estimate in a Bloomberg News survey of 29 economists.

July trade data, due tomorrow, may show that exports climbed 35 percent from a year earlier, down from 43.9 percent in June, according to the survey of analysts. Import growth may have slowed for a fourth month to 30 percent, leaving a trade surplus of $19.6 billion.

Consumer staples rose 1 percent today after rallying 6.5 percent last week. Kweichow Moutai Co., China’s biggest producer of baijiu liquor by market value, added 2.3 percent to 151.61 yuan. Wuliangye Yibin Co., the second biggest, rose 0.7 percent to 30 yuan.

Defensive Stocks

“Investors are buying defensive stocks on the prospect these companies will have stable earnings growth even amid the economic slowdown,” Dai Ming, a fund manager at Shanghai Kingsun Investment Management & Consulting Co., said Aug. 5.

Chinese stocks volatility fell to the lowest level in almost four years, signaling investors’ “comfort” with the outlook for slowing growth, according to AlphaShares Inc.

“The plunge in volatility is attributable to both the summer slumber and the turn in China policy,” Jonathan Masse, who helps oversee about $480 million in Chinese stocks at Walnut Creek, California-based AlphaShares, said in e-mailed comments.

Premier Wen Jiabao’s speech in Beijing July 16 signaled a “subtle shift” in government policies and that no additional tightening measures will be introduced, UBS AG economist Tao Wang said in a July 27 report.

Inflation Outlook

China’s worst floods in more than a decade may cut rice and pork supplies for the largest producer, boosting prices and hampering government efforts to keep inflation under 3 percent. Rice output may fall 5 percent to 7 percent, Li Qiang, managing director at Shanghai JC Intelligence Co., said last week.

Inflation may have accelerated to 3.3 percent from 2.9 percent in June, boosted by food costs and the comparison with a year earlier, when prices were falling, according to the survey. The figure is scheduled for release in Beijing on Aug. 11.

Heilongjiang Agriculture gained 3.6 percent to 14.30 yuan, its highest since March 24. Xinjiang Guannong Fruit & Antler (Group) Co. jumped 6 percent to 21.24 yuan. China Animal Husbandry Industry Co. rose 2.1 percent to 28.20 yuan.

Flooding has killed more than 1,450 people in China this year and left another 669 people missing, Xinhua reported Aug. 6, citing the Ministry of Civil Affairs. The worst floods since 1998 prompted Premier Wen to call on local authorities to strengthen rescue and relief efforts.

China’s inflation outlook makes it a “little too soon” for a general monetary easing, according to China International Capital Corp.

Curbing Overcapacity

The government named 2,087 companies with outdated production capacity that should be shut by the end of September, the Ministry of Industry and Information Technology said in a statement on its website. That included 762 cement makers, 279 paper companies and 175 steelmakers.

Companies that don’t shut the outdated production capacity will be barred from obtaining loans, won’t get government approval for new investments and won’t have access to additional land, the ministry said in a statement yesterday.

Anhui Conch, China’s biggest cement maker, gained 1.8 percent to 20.10 yuan. Gansu Qilianshan Cement Group Co. rose 1.7 percent to 16.96 yuan. Tangshan Jidong Cement Co. climbed 3.6 percent to 18.90 yuan.

Banks Drop

Industrial & Commercial Bank of China, the nation’s biggest listed lender, lost 0.5 percent to 4.24 yuan. Construction Bank, the second largest, slipped 0.4 percent to 4.85 yuan.

Everbright Bank may raise as much as 18.91 billion yuan ($2.79 billion) in the nation’s second-largest initial public offering this year.

The Beijing-based bank will sell as many as 6.1 billion shares before exercising an over-allotment option at 2.85 yuan to 3.1 yuan apiece, according to a statement to the Shanghai stock exchange late yesterday.

The IPO would be the second-largest, first-time stock sale in China this year, trailing Agricultural Bank of China Ltd.’s 59.6 billion yuan sale last month.

The following companies were among the most active in China’s markets. Stock symbols are in brackets after companies’ names.

Jinan Iron and Steel Co. (600022 CH) rose 1 percent to 3.91 yuan after the steelmaker said first-half net income reached 205.4 million yuan compared with a loss a year earlier.

Shanghai Tunnel Engineering Co. (600820 CH) gained 2.7 percent to 10.76 yuan. The company said first-half net profit may have risen by more than 50 percent from a year earlier as sales gained and it benefitted from more government subsidies.

Sinoma Science & Technology Co. (002080 CH) climbed 5 percent to 42.42 yuan after saying it posted a 241 percent increase in first-half net income to 82.1 million yuan.

Tianjin Tasly Pharmaceutical Co. (600535 CH) surged the 10 percent daily limit to a record 35.32 yuan as BOC International reiterated its “buy” rating on the company’s “enormous growth potential” after the U.S. Food and Drug Administration approved the Dansen drug.

--Zhang Shidong. Editors: Allen Wan, Richard Frost

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at +86-21-6104-7014 or szhang5@bloomberg.net

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